Definitely! In fact, a small business probably needs asset protection more than most. Too often clients make that frantic call, “can I get sued” after a business transaction has already gone bad. Anyone can sue, if they are willing to pay the filing fees. So, yes, small businesses need asset protection.
Businesses can expose owners, and their assets, to risk
The reality is, anyone who starts a business has exposed himself or herself to risks, both financial and legal. Of course, there are the obvious concerns, such as contracts and creditor accounts. But, not all risks to your assets are as obvious. Consider, for instance, if your business makes products and one of them has a defect and causes injuries to a consumer. This type of liability, or risk to a business’ assets is all too common. That is only one example. Therefore, you need to know how to protect yourself and your small business.
Forming an LLC is the first step
If you haven’t done so already, creating an LLC business entity for your business is an important first step. As the owner, or member, you must open a separate bank account for your business and conduct your business in the name of the LLC. Limited Liability Companies (LLCs) that have more than one member should have an Operating Agreement to set out your relationship and your rights, including what happens if one member decides to leave the business.
Maintain appropriate liability insurance
In addition to forming an LLC, business owners should obtain the appropriate insurance for the business. As your business continues to grow, the type of insurance you need will likely change. Be sure to also inquire about an umbrella policy to provide personal protection. This coverage would be above and beyond any personal auto and homeowner’s insurance you may already have.
Do not provide a personal guarantee
A very basic rule to adhere to, if you are looking to protect your personal assets, is to avoid signing personal guarantees. Most new business owners will be required to guarantee significant contracts such as leases and credit agreements with major suppliers. Regardless, you should never sign a personal guarantee. Be sure that your spouse adheres to this rule as well. It is also a good idea to keep some assets in your spouse’s name to ensure that you don’t put all of your eggs in one basket.
If the asset protection planning is done early, you will have greater flexibility in providing the appropriate protection for your assets. In some situations, you may even be able to establish irrevocable trusts to benefit your family and assist with any estate planning goals that you may have.
If you have questions regarding small business planning, or any other asset protection planning needs, please contact the Schomer Law Group either online or by calling us at (301) 337-7696.